What is agency by ratification?
How do you legally define it?
What are the important elements you should know!
In this article, we will break down the legal definition of agency by ratification so you know all there is to know about it!
Keep reading as we have gathered exactly the information that you need!
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Understanding Agency by Ratification
An agency by ratification (or ex post facto agency) is a type of agency that is created when a person, the principal, approves or accepts unauthorized actions or conduct of another person, the agent, that has already taken place.
In other words, an agent acts on behalf of the principal without having an express authority to do so and eventually the principal “ratifies” or accepts the consequences of the acts or conduct of the agent.
Let’s look at an example.
Imagine that a company sends a company representative to a trade show to meet potential vendors and suppliers.
The company representative, the agent, was asked to collect vendor and supplier information, price lists and any other relevant information so the company can eventually see if they could purchase inventory from them in the near future.
However, the agent not only collects information from suppliers at the trade show but she goes ahead and places an order for $25,000 worth of merchandise for the company.
In this case, the agent did not have any express authorization to purchase any inventory for the company at the trade show.
However, the company later finds out that she made a really sweet deal as she paid $25,000 for merchandise that was worth $40,000.
As a result, the company pays the supplier $25,000 and handles all the necessary paperwork to get the inventory.
In this example, through its conduct (payment for the transaction and doing the paperwork), the company ratifies the agent’s unauthorized inventory purchase.
Agency by ratification definition
What is the actual legal meaning of “agency by ratification”?
A ratification agency is when a person (the principal) approves the actions and conduct of another (the agent) generating legal obligations or having a consequence on a third party who reasonably believed it was transacting with the principal.
Said differently, ratification agency is when someone without authority acts on behalf of someone else (where there was never any agent-principal relationship to begin with) but the conduct or action is eventually approved by the unintended principal.
Agency by ratification elements
Let’s look at the ratification agency law to see the important elements that must be present for ratification to effectively occur.
In summary, for the agent’s actions to be ratified, you’ll need the following:
- The principal must have free choice to ratify or disclaim the agent’s actions
- The agent must have acted on behalf of the principal
- The principal must have the legal capacity to contract or assume legal responsibility
- Ratification can be done expressly or implied based on the principal’s conduct
- The principal must have had the ability to transact at the moment the agent acted and at the moment of the ratification
- The principal must have full knowledge of the facts when ratifying the act
- The principal must ratify the entire actions of the agent
- The ratification must be done in a timely fashion
- The ratification cannot affect third party rights
- The ratification takes effect as of the moment the agent acted
Let’s look at some of these aspects in more detail.
Agent acting on principal’s behalf
For the principal to eventually ratify, approve or accept the agent’s actions, the agent must have acted on behalf of the principal.
This means that the agent must have clearly presented itself to be acting on behalf of the principal.
Otherwise, if the agent was not acting on the principal’s behalf, the agent acted in its own name and will remain responsible for its own actions, conduct or omission.
Ratification of the actions
In the context of agency ratification, a person (agent) has already acted on behalf of someone else (principal) by legally committing something on his or her behalf generating certain consequences without having any authority to do so but the principal “ratifies” the actions.
In essence, the unauthorized conduct, transaction, contract or legally binding obligation is approved by the principal who agrees to perform the obligations or assume the responsibility for the conduct.
Ratification is the principal’s approval or acknowledgment that it accepts the responsibility for the agent’s actions as if the actions were fully authorized from the outset.
When the principal ratifies the agent’s actions, it must be done in whole (not partially) and it will take effect as of the moment the agent acted.
Principal legal capacity
What’s important is that for the principal to ratify the agent’s actions or conduct, the principal must have the legal capacity to directly carry out the conduct at the time of ratification and at the time of the agent’s action.
For example, a bankrupt principal cannot ratify an agent’s conduct when the law would have prevented the principal from performing the same conduct directly.
Similarly, an agent cannot act on behalf of a person who has become incapacitated when the principal was inept to take action directly at the time of the agent’s conduct.
You can also have a person acting on behalf of a company that has yet to be incorporated or a company cannot ratify pre-incorporation contracts.
Example of agency ratification
Let’s look at an agency by ratification example to better illustrate the concept.
Let’s say that you have a real estate agent acting on behalf of a buyer looking for a house.
The buyer places an offer on a property conditional on the buyer getting financing from the bank and doing an inspection to its satisfaction.
However, imagine that the buyer gets the financing but still has a few days to decide on the result of the inspection.
Before the buyer formally accepts or rejects the result of the property inspection, if the real estate agent confirms to the seller that the buyer is satisfied with the inspection, the seller will expect the buyer to move to the closing of the deal.
The real estate agent’s actions have resulted in legal obligations on the buyer even though the agent was not expressly authorized to declare the buyer’s satisfaction.
In this example, if the buyer accepts the real estate agent’s declaration of satisfaction or approves it, then there is a ratification of the agent’s conduct.
The ratification will be effective as of the moment the real estate agent confirms to the seller that the buyer is satisfied (even though at the time it was not authorized).
The end result is that the agent’s actions, conduct and commitments are authorized as if the agent was legally acting on behalf of the principal right from the beginning.
So what is the meaning of agency by ratification?
Let’s look at a summary of our findings.
Agency by Ratification
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